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The Central Bank of Nigeria (CBN) has reiterated its stance that deposit money banks are not permitted to utilize foreign currency gains accrued in 2023 for dividend payouts or covering operational costs. Following the devaluation of the naira in June, banks reported increased earnings, largely attributed to revaluation gains.
This trend was particularly evident among major banks, whereas some smaller lenders faced expenses due to their exposure to foreign currency liabilities. According to unaudited financial statements released on the Nigerian Exchange, Tier-1 banks saw an uptick in earnings driven by gains from their substantial net open positions.
However, as part of efforts to stabilize the forex market in 2024, the CBN has instructed banks to reduce their foreign currency holdings to mitigate exposure. This measure aims to offset the impact of devaluation on banks’ balance sheets.
In a circular signed by Dr. Adetona Adedeji, the Acting Director of Banking Supervision at the CBN, the apex bank emphasized the directive issued in September 2023 regarding FX policy reforms and prudential guidelines for the banking sector. The circular states:
“Further to our letter dated September 11, 2023, which outlined the effects of FX policy reforms and prudential guidelines for the banking sector, the CBN wishes to reaffirm that banks are required to exercise utmost prudence and set aside foreign currency revaluation gains as a counter-cyclical buffer to mitigate any adverse movement in the FX rate.
“In this regard, banks are prohibited from using such FX revaluation gains for dividend payouts or operational expenses.”
The CBN’s directive underscores its commitment to maintaining financial stability and ensuring responsible banking practices within the Nigerian financial system. Banks are expected to adhere strictly to these guidelines to promote stability and resilience in the FX market.
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